ECB keeps interest rates unchanged

Mr Draghi says the European Central Bank is studying how it might potentially change its asset-buying programme.
Mr Draghi says the European Central Bank is studying how it might potentially change its asset-buying programme.PHOTO: BLOOMBERG

FRANKFURT • The European Central Bank (ECB) kept its stimulus programme unchanged yesterday, in a sign that policymakers do not see an immediate danger to the euro zone recovery from risks including Britain's decision to leave the European Union.

The bank's governing council left the main refinancing rate at zero, the deposit rate at minus 0.4 per cent and asset purchases at €80 billion (S$121 billion) a month, with ECB president Mario Draghi saying the bank is studying how it might potentially change its asset-buying programme.

European stocks fell and the euro extended gains against most of its major peers after the decision.

"The governing council continues to expect the key ECB interest rates to remain at present or lower levels for an extended period, and well past the horizon of the net asset purchases," the council said in a statement.

But the ECB is widely expected to extend the quantitative easing programme beyond next March, when it is due to end. It is also likely to have to tweak the terms of the scheme to avoid running out of assets to buy.

Mr Draghi said the ECB's policymakers had decided to ask various groups in the bank to study possible changes. "The governing council tasked the committees with evaluating the options that ensure a smooth implementation of our purchase programme," he said after the decision.

Facing high unemployment, weak growth and the threat of deflation, the ECB has provided extraordinary stimulus in recent years, cutting interest rates deep into negative territory and pushing the cost of credit to all-time lows, hoping to jump-start growth.

But inflation has undershot the ECB's target for more than three years and is expected to stay below target for years to come as growth remains weak.

The ECB cut its growth forecast for next year to 1.6 per cent from the 1.7 per cent seen in June, to account for risks including the expected effect of Britain's decision to leave the EU, Mr Draghi said.

The euro rose 0.5 per cent to US$1.1298 as of 7.54am in New York after the decision. The Stoxx Europe 600 Index slipped 0.2 per cent. Germany's government bonds fell for the first time in four days, with the country's 10-year bund yields rising from the lowest level in almost two months.

Wall Street opened little changed after the ECB decision. United States stocks have been trading in a tight range in recent months amid growing uncertainty over the US central bank's interest-rate decision expected later this month. "Until we get the Fed out of the way, it's going to be a market that remains indecisive and directionless," said First Standard Financial chief market economist Peter Cardillo.

BLOOMBERG, REUTERS

A version of this article appeared in the print edition of The Straits Times on September 09, 2016, with the headline 'ECB keeps interest rates unchanged'. Print Edition | Subscribe